Goldman Sachs recommends these stocks as the economy roars back to life

Published Sat, Apr 3 202111:02 AM EDT

Investors and strategists expect the economy to roar for the rest of the year. Goldman Sachs has identified the companies that are likely to benefit from the bounce back. Now that the first quarter of 2021 is in the rear view, investors will hear about big gross domestic product projections. Even the Federal Reserve dialed up its GDP forecast for the rest of 2021 in its most recent policy meeting. The central bank now expects real gross domestic product to grow 6.5% in 2021 , compared with its 4.2% forecast from its December meeting . Plus, several Wall Street firms have higher growth projections for the remainder of the the year. Goldman Sachs has a basket of stocks that should benefit from the huge economic rebound. The names in Goldman's domestic cyclicals basket have a high proportion of domestic sales and high beta correlation to the bank's proprietary US MAP index. Positive US MAP scores indicate that economic data has been strong relative to expectations, the firm said. The MAP index includes 25 indicators like real GDP growth, purchasing managers' indices, industrial production, retail sales, international trade reports, the unemployment rate, and confidence and housing-related indicators. "Companies in the basket derive 80% of sales domestically and have a weighted-average beta to the US MAP index of 1.2 compared with 71% and 0.5, respectively, for the S & P 500," David Kostin, Goldman Sachs' chief U.S. equity strategist, told clients. Plus, Goldman's domestic cyclicals basket is beating the overall market this year: Take a look at the bank's list here. The majority of the names in the top ten holdings in Goldman's domestic cyclicals basket are financial companies. Major U.S. banks like JPMorgan, Bank of America, Wells Fargo , Citigroup and Morgan Stanley all make the list. Banks perform well during periods of growth in the economy due to increased consumer spending and rising interest rates. Banks benefit from higher interest rates as their net interest margin — that is, the difference between what they pay on deposits and earn on loans — increases. Higher rates also allow financial companies to charge more for services and make more on their various holdings. Further, increased bond market activity helps the trading side for those with that business. Berkshire Hathaway and BlackRock also made Goldman's basket. Charles Schwab is the tenth largest holding in the basket. Morgan Stanley hiked the e-broker's price target on Wednesday to $83 per share from $76 per share, maintaining the stock as one of its top overweight picks. "SCHW remains one of our top Overweight picks for 2021 as a play on the economic recovery that benefits from rising long-end rates and also benefits from structural growth...and idiosyncratic growth...that we believe should see 18% EPS [compound annual growth rate] over the next 5-years," Morgan Stanley equity analyst Michael Cyprys told clients. The firm said Schwab should react positively to the yield curve steepening and prospects for federal funds rate hikes in the coming years. The so-called fed funds rate is the interest rate at which banks lend money to each other, usually on an overnight basis. — with reporting from CNBC's Michael Bloom.

A pedestrian passes in front of a Charles Schwab Corp. bank branch in downtown Chicago, Illinois.

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Investors and strategists expect the economy to roar for the rest of the year. Goldman Sachs has identified the companies that are likely to benefit from the bounce back.